Abstract This paper was prepared for the Symposium on the (October 1987) Stock Market Crash, held February 8, 1988, at Princeton University. The article provides a framework for thinking about the recommendations made by the Presidential Task Force on Market Mechanisms. Three conclusions can be drawn from the Task Force's findings: First, the proper focus of analysis of the events of the October crash should be on “market mechanisms” rather than on fundamental imbalances in the economy as a whole. Second, the instability evident in the events of October 1987 was not the inexorable limit of a steadily increasing level of day-to-day stock price volatility. Third, under the sorts of conditions that prevailed on late Monday and Tuesday, an orderly halt to trading (and subsequent orderly reopening) would have been preferable to what actually took place. We describe how the data collected by the Task Force leads us to these three broad conclusions.
Journal of Economic Perspectives – American Economic Association
Published: Aug 1, 1988
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